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Another article full of inflation bad advice in the Wall Street Journal

Posted by John Reed on

WSJ has another article on protecting your net worth from inflation. It is as dumb as the prior ones.
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1. WSJ seems to have a policy against mentioning the word hyperinflation. The only inflation that they acknowledge is possible is the 1970s-1980s rates in the teens. This may be because they are afraid of being thought kooky or afraid of being blamed for it as a result of having mentioned it. If you SEE the problem, you ARE the problem.
2. WSJ seems incapable of thinking outside the securities-Social Security-treasurys box. Since Social Security and Treasurys are USD-denominated, recommending them for inflation protection is akin to telling you how to put out fires with buckets of gasoline.
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I did learn a couple of things. With regard to stocks, I have said they go up, down, and sideways in inflation, therefore they are not useful for hedging USD inflation. The WSJ aricle says during eight 20th century inflations above 5%, return on stocks was MINUS 7%. So much for stocks as inflation hedges.
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By the way, many people believe stocks ARE denominated in USD. They are absolutely NOT USD-denominated. They are denominated in shares which means a % ownership of the corporation. Bonds ARE USD denominated. If there is a $ sign on the proof that you own the asset, it is USD-denominated. There is no $ sign on a stock-ownership certificate or a real estate deed.
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I have also said that how a particular stock fares in inflation is a function of how much they have followed the advice in my book on the subject, including if they accidentally did what my book said even though they never heard of my book How To Protect Yourself From Hyperinflation & Depression.
How to Protect Your Life Savings From Hyperinflation & Depression, 2nd edition book.
That is, if they own assets not denominated in USD, sell to foreign buyers who could pay in their currencies, or have USD-denominated DEBT (which would be quite profitable in high inflation), they should do relatively well in high inflation. The Journal article says energy and natural-resource stocks do best in inflation. Those would be assets not denominated in USD.
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Those who got hurt worst in past hyperinflations around the world were pensioners and annuitants. Social Security is a pension and an annuity.
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It is indexed to inflation but the indexation is a joke. It only adjusts annually and the adjustment is based on prices from months before you get the increase. The faster inflation moves, the bigger the indexation joke is on you.
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You will always be months late and thousands of dollars short. The indexation clauses in Social Security and inflation Treasurys are like the abortion clinic with a ten-month waiting list.
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Indexation in bonds or annuities are essentially gold clauses. Those guarantee you will be paid in gold of the same weight and purity as when you entered into the contract. The US government reneged on gold certificates in Executive Order 6102 on 1934. https://en.wikipedia.org/wiki/Executive_Order_6102
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They will do the same as they did with regard to the WW I gold certificates for roughly the same reason: there is not enough real money in the world to make holders of inflation indexed Treasurys whole after hyperinflation hits.
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The article contains one absolutely false statement: it says REITS are good inflation. That may be true because REITs own assets not denominated in USD. But author Anne Tergesen goes on to say REITs are good in inflation because, "landlords in the past have often been able to raise rents to keep pace with inflation.”
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I guarantee you that the following Five Bad Laws WILL be enacted if we get hyperinflation:
1. Capital controls (you may not possess or spend billion gold or foreign currencies)
2. Price controls (rents and tenant wages are prices)
3. Rationing
4. Anti-hoarding law
5. Financial-repression laws (prohibit you earning market interest or any interest; we had them in the 1960s, e.g., banks could not pay interest on checking accounts.)
The article says commodities are good hedges against inflation. Wow! Intelligent life exists at the WSJ! Then they revert to their blindness to outside-the-securities-salespeople box assets by saying, "Investors typically purchase them via funds that buy commodities futures."
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Aghhh! Commodities are to commodities futures contracts what lightning bugs are to lightning. I recommend you buy commodities, but that you "take delivery" to use the industry phrase. You can do that by buying nickels or pennies or copper tubing or other commodities. Silver and gold coins would also work, but they are currently overpriced.
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The article finishes with some nutty statement that gold works only in the long run. That is false. Gold is complex. See my article on the disadvantages of gold as an inflation hedge.
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